foir print

01.10.2013

“Youthful Start-up Culture Spreads To Russia’s Regions”

Enthusiasm for start-ups has gr own since the financ ial crisis hit Russia in 2008 but state programs, sponsors and young entrepreneurs are also dri ving the tr end. Budding business people in the r egions face different challenges: a narr ower market, more varied consumer habits that contrast with those in the capitals and extra administrative barriers. Red tape can be a greater burden on small businesses.

Federal programs help to overcome these barriers and ease the process of starting a business. These are widely advertised in the press and on television. Less well known are those offered by international sponsors. For example, the International Business Leaders Forum (IBLF) r uns the pr ogram, Youth Business in Russia, or Молодёжный бизнес России (MBR). The program brings together federal authorities, commercial organizations and private individuals to become advisors and coaches. Banks provide loans on favorable terms.

By focusing on the cr e- ation of small businesses the project aims t o tackle youth unemployment. Young people are two to three times more likely to be unemployed than older people of w orking age, according to figures from the Organization for Economic Cooperation and Development. By helping to form and devel- op small businesses, such pr ojects are likely to bring down unemployment in general. In mature economies, 80 percent of new jobs are created by small businesses.

The small and medium size ent erprise (SME) sect or accounts for about 50 percent of gross domestic product and an absolute majority of jobs in OECD coun- tries. Opora Russia, The All R ussian Non-governmental Organization of Small and Medium Business, estimates that the c ountry has 3.4 million entrepreneurs, and that SMEs account for about 25 percent of jobs and about 17 percent of GDP. That’s a small but gr owing body of entre- preneurs. The q uestion for many people is how to join it.

The IBLF ar gues that 20 pe rcent of people have the pot ential to become entrepreneurs but less than 5 percent have the opportunity. Research by David Blanchflower, of the University of Sterling, and Andrew Oswald, of Warwick University, in the UK, f ound that the pr obability of bein g self-employed actually rises with age but the re is no firm link t o education: highly educ ated people ar e more likely to be self-employed in the US and UK, but less lik ely in Canada. Self- employment is higher in the US among the dominant social groups but in the UK ethnic minorities dominate.

Other studies find that you are two-to-three times more likely to be self-employed if you have an entr epreneurial parent. Research also shows a str ong link betw een setting up an independent business and ha ving access to capital, such as an inhe ri- tance. This suggests that advice and the availability of lump sums or cheap loans are vital to success. And this is what federal and private sector initiatives provide.

The IBLF r uns in man y countries besides R ussia, like Canada and Ukr aine. The project was launched in K aluga Oblast five years ago and has expanded t o six regions, adding Voronezh, Novosibirsk, and Rostov oblasts and P rimorskiy krai. In July 2012 the MBR project was launched in Moscow.

By January 2013 MBR had appr oved 139 projects with overall value of over 20.3 million rubles, or $530,000 USD. In t otal, the program has so f ar created 470 jobs, about half of them in V oronezh region, a third in Kaluga region and the r est split between Vladivostok and Novosibirsk. It’s not just about cr eating jobs, however. By involving state authorities as well as young entrepreneurs, the organizers of MBR say they promote a c ommon language, a shared interest in Russia’s economic growth and opportunities on all sides.